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How does divorce affect eligibility for student financial aid?

Mark Kantrowitz

September 15, 2009

I am currently a single parent with a daughter receiving financial
aid. However, I plan to marry and am curious how that affects my
child’s financial aid. Will his income be considered when completing
the FAFSA next year even if we don’t share financial responsibility
for her or commingle our bank accounts?
— Terri S.

If a dependent student’s custodial parent remarries before submitting
the FAFSA, the stepparent’s income and assets must be reported on the
FAFSA per section 475(f) of the Higher Education Act of 1965. All
of the stepparent’s income from the prior tax year must be reported
even if the stepparent and parent got married mid-year or after the
end of the tax year. Prenuptial agreements do not exempt the
stepparent from this requirement; the stepparent’s income and assets
must be reported on the FAFSA even if the stepparent refuses to
contribute to the student’s college education.

I am a college student currently living with my mother and
stepfather. My parents are divorced and my father lives in a different
state. I just recently found out that my father has been claiming me
as a dependent on his taxes. Does this have any effect on my financial
aid? I have always listed my mother and stepfather on the FAFSA since
I live with them and receive help from them and not my father.
— Erica K.

When a student’s parents are divorced, the FAFSA must be completed by
the parent with whom the student lived the most during the 12-month
period ending on the application date. This is regardless of which
parent claimed the student as an exemption on their federal income tax
return.

If the student lived equally with both parents, the parent who
provided more support to the student during the 12-month period must
complete the FAFSA. It is rare for a student to live equally with both
parents, but it can happen. For example, the student might have lived
with neither parent, the 12-month period may have included an even
number of days because of a leap year, or the divorce may have occurred during
the 12-month period with an even number of days since the divorce. Also, the
definition of support is not the same as the definition used by the
IRS. So while multiple support agreements and divorce decrees may
specify which parent can claim the student on their federal income tax
return, the FAFSA is based on whichever parent actually provided more
support. (Support includes in-kind support, such as food, lodging,
clothing and medical care.) However, if the student’s FAFSA is
selected for verification and the student is not claimed as an
exemption on the parent’s federal income return, the college financial
aid administrator might ask for an explanation or ask for a copy of
the divorce decree.

If the student lived equally with both parents and received equal
support from both parents during the 12-month period, the parent who
provided more support during the most recent calendar year for which
support was provided is responsible for completing the FAFSA.

The Higher Education Act of 1965 does not specify what happens if none
of these criteria apply. In such a circumstance the decision is
subject to the professional judgment of the college financial aid
administrator. Most college financial aid administrators will require the parent with the greater
income and assets to complete the FAFSA.

I am separated, not divorced. I will be laid off from my job in
October. My friends are advising me to get divorced, as that can help
my kids get scholarships based on need (I have a high school senior
and junior). I’m wondering if that’s true; if the kids live with me
and I am divorced, especially without an income, would we qualify for
need-based aid? Is that a smart move when my kids are bright and could
possibly get merit scholarships?
— Sherry H.

The rules are the same for separated parents as for divorced parents,
so there is no need to get divorced in order to qualify for more
need-based aid. Since your children live with you and you are
separated, only your income and assets will be reported on the FAFSA.
You will also have to report any alimony or child support you
are receiving from your ex-spouse.

The separation does not need to be a legal separation. An informal
separation is treated the same as a legal separation or
divorce. However, parents with an informal separation cannot cohabit
(not even on different floors of the same house), so the college
financial aid administrator will want to see proof that the parents
maintain separate residences, such as copies of utility bills,
leases or mortgage payments for separate residences. College financial
aid administrators will suspect a sham separation if one parent claims
to have slept on a friend’s couch or stayed in hotels.

Many parents overestimate the ability of their children to win
scholarships. If your children do win some scholarships, the amount of
need-based aid will be reduced. However, many colleges have favorable
policies that allow all or part of the scholarship to replace loans in the
need-based financial aid package.